On Tuesday, New York initiated a lawsuit against Coinbase and Gemini, contending that their prediction market offerings, which encompass sports, entertainment, and elections, are in contravention of state laws regulating gambling. According to the lawsuit, the prediction market products offered by Coinbase and Gemini are essentially unlicensed gambling products, as evidenced by their marketing strategies and the role they play as bookmakers on their platforms. The office of the New York Attorney General described the behavior of these prediction market platforms, referring to users as 'bettors' and characterizing each contract as a 'bet.' The lawsuits also argue that these platforms enable individuals between the ages of 18 and 21 to place bets, which is prohibited in New York, as the state bans anyone under 21 from engaging in gambling activities on mobile apps.
The lawsuit against Coinbase stated, 'As described above, what Respondent offers through its platform is quintessentially gambling: It allows a bettor to stake or risk money upon the outcome of a contest of chance or a future contingent event not under the bettor’s control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome.' New York is not the only state to take legal action against prediction market providers for their sports and entertainment products, as Nevada, Washington, and several other states have filed similar lawsuits, arguing that at least the sports-related bets constitute gambling and not federally regulated swaps. This issue is currently before multiple appeals courts and is likely to be heard by the U.S. Supreme Court. In response, Coinbase Chief Legal Officer Paul Grewal stated on X, formerly Twitter, that 'prediction markets are federally regulated national exchanges' and that Coinbase would advocate for federal oversight.
A spokesperson for Gemini declined to comment. Commodity Futures Trading Commission Chairman Mike Selig has argued that prediction markets, including those related to sports, fall under the 'exclusive jurisdiction' of his agency. The CFTC has filed lawsuits against Arizona, Connecticut, and Illinois to prevent them from bringing charges against prediction market providers and has joined another case in Nevada to defend these providers. Kalshi, a major prediction market provider, was not named as a defendant on Tuesday.
The company had previously sued the New York State Gaming Commission, seeking a federal court ruling that state gambling laws do not apply to its platform. This case is still pending in the Southern District of New York courthouse. New York State Attorney General Letitia James stated that the products offered by Gemini and Coinbase are 'illegal gambling operations.' She added, 'Gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution.'